Living off my warchest

**TykeMerc** · 22 April 2011, 20:21

Paying yourself from retained profits is absolutely fine so long as you pay the appropriate taxes and NI's (if applicable).

As to investing the money so long as you're aware that profits on money invested by the company belong to the company until properly disbursed to you then there's no real issue.

I have no doubt that quite a few of us intend to retire at some point with a considerable Myco Ltd warchest, I certainly do.

**excessuk** · 23 April 2011, 01:04

Yes I'm aware of ltd profits are not personal profits. But say my company's pot makes £20k on interests/rent/whatever, and then myCo Ltd pays its sole employee (myself) exactly £20k. Is it correct to say myCo ltd would only be liable for PAYE/NI on the £20k salary and no corporation tax?

Is it efficient to do things this way or is better to have myCo Ltd pay me a large pension pot and live off an annuity? Sorry if the question is silly but I'm struggling with this and I want to make the right choice.

Cheers

**malvolio** · 23 April 2011, 08:48

There are no Yes-or-No answers. Basically any money that passes fro YourCo to you is taxable income; how much tax depends on whether or not it's salary or dividends, as I'm sure you appreciate.

The pension fund thing gets a bit more complicated, but basically YourCo can fund a pension pot for its directors free of corporation tax. You can draw down 25% of that pot tax free at any time but the remaining 75% has to be ring-fenced for the future pension. So to do it more than once means you have to start a fresh pension fund and only take 25% of that one. Rinse and repeat.

Also, of course, the pension fund remains tax free, but you will be liable for tax on any income you derive from it.

So pensions are very tax efficient but working out the best combo needs decent Pivot Table skills and attention to how you designate money as your pension fund if you're not going to break some rule somewhere. I really suggest you get a paid IFA who understands all the ins and outs.

**TykeMerc** · 23 April 2011, 08:54

I'm not an accountant.

There's Corp Tax to pay on profits irrespective of how they're earned.
As to buying an annuity from Myco funds I doubt that's allowable without tax implications, but not being a pensions specialist or accountant I don't know for sure.
I do know that Myco can make contributions to pension plans as a way to get money from the business in a tax efficient manner, you should get accountants advice on how that's best achieved.

**BolshieBastard** · 23 April 2011, 09:09

Dont know why people keep asking this question. You are employed by your co and even if you are not generating income for it during any periods you are not working, you can still draw wages, expense (if legit) and divi's.

However, something moe important to bear in mind if you decide to live off your warchest is, how long do you intend doing it? Agents and some clients become very wary of taking people on who have long periods out of work (as they see it).

Some agents and clients are enlightened about it but the majority are not imo. You may fin it difficult although not impossible to get back into your market quickly if you take a long time off. You may also find the rate you are offered is below your expectations too.

Of course if your intention is to not return to contracting, this wont be an issue (and possibly not an issue even if you do). But its always wise to be fully aware of any pitfalls.

**Wanderer** · 23 April 2011, 13:06

Originally posted by excessuk View Post

I've been contracting for a couple of years and the pot in my Ltd is starting to build up. I've been living cheaply and I intend to continue doing so, and I was wondering if it's acceptable/legal to at some point stop working but keep paying myself the minimum salary + dividends? Say if I manage to get £500k in my ltd company (after corp tax) can I pay myself a salary + divs off that pot for many years or would the HMRC have something to say about it?

It might be worth considering applying for ESC-C16 as an efficient way to withdraw the money from your company?

**TykeMerc** · 23 April 2011, 14:46

Originally posted by Wanderer View Post

It might be worth considering applying for ESC-C16 as an efficient way to withdraw the money from your company?

Absolutely if it still exists, I made the assumption that by the time the OP had built up £500k that it would have been changed, abolished or made unavailable to small companies like the ones we have.

**Wanderer** · 23 April 2011, 19:00

Originally posted by TykeMerc View Post

Absolutely if it still exists, I made the assumption that by the time the OP had built up £500k that it would have been changed, abolished or made unavailable to small companies like the ones we have.

Yes, that would be one to do sooner rather than later. Might be an option worth considering but as you say - I wouldn't put it down as a long term plan.

**contractor79** · 23 April 2011, 20:07

Originally posted by excessuk View Post

Ideally I would like those £500k to be invested somehow via the Ltd company (suggestions) to generate a bit of revenue - otherwise the £500k wouldn't last me for too long (taking £30k per year they would only last 17 years). I'm assuming mortgage paid off before retiring.

Don't underestimate the force of inflation. £30k after 10 years may just be worth half what it is now. Having lived off a warchest for a while myself I was stunned at how the prices of things were going up just over a few months.

I would question whether it is wise to keep that much in your ltd co. Why not take it out now and invest elsewhere? Put in ISAs or put some in a pension. You can save tax now if you put into a pension but of course you can't draw out until you retire and then you will be income taxed on it.

Also is it really wise to keep that much in your Ltd company? What if you were sued - it wouldn't matter if you had next to nothing in your ltd co.

Living off my warchest